"Volkswagen joins a growing roster of foreign and United States automakers that are struggling in Europe, where car sales dropped 10 percent during the first quarter, including double-digit decreases in France, Germany and Spain.

Most automakers are banking on surging sales in the United States to offset some of these losses.

And VW&#146;s chairman, Martin Winterkorn, cautioned that the company expected little improvement any time soon in Europe."

Only reason sales are good in the US is creative subprime auto loans. Average auto loan in the USA is $486 per month on 84 month loan. That is unsustainable. Look for another crash when the foreclosed cars start coming in.

The average auto loan is 84 months? Huh? Where did that come from? I haven't seen any credible economic analysis equating subprime car loans to the mortgage disaster,either. There's no manipulated bubble for new car pricing, and cars can be repossessed a lot easier than houses. Even if it does sputter, this can't and won't cause a crash. And I'll wager it won't even sputter. People will put off a lot to keep their car. Worst thing it will do is maybe delay future sales as terms are longer (but more like 65 months rather than 84)

A big reason sales are up is because they were low for many quarters, and the fleet is getting old and worn.

GM is offering loans on new cars over the MSRP to cover the trade-in. While out on the road I heard this financial guy Dave Ramsey, and that was his statement of 84 month loans and $486 payments.

Welcome to the start of the next subprime crisis: Subprime auto loans.

The Auto Subprime BubbleBanks have once again cast a greedy eye to the lower middle class - who are already leveraged up to their collective eyeballs. This demographic, call it the "easy prey class," is being targeted for auto loans at usurious prices, in most cases north of 20%.

Reuters recently reported the all-too-familiar story of a school bus driver in Alabama who fell into precisely this trap.

Jeffrey Nelson, of Jasper, AL, had one car repossessed, along with serious medical bills. His credit history was checkered indeed.

Yet, he was able to put up his Mossberg shotgun, worth about $700, along with $300 in cash, to come up with the $1,000 down payment that Maloy Chrysler Dodge Jeep said was needed to get him behind the wheel.

The car was not flashy - it was Japanese and had four wheels. According to Reuters, Nelson took out a $10,294 loan to buy a 2007 Suzuki Grand Vitara.

But that $10,294 loan carried a sky-high interest rate, at 21.9%. The true cost was over $12,500.

A riskier loan means a higher yield for speculators, so they're loading up on the riskiest tranches. In most cases, after demand works itself out and drives yields south of 2%, two-year subprime auto ABSs yield 1%.

That looks very attractive compared with 0.5% on prime auto loan ABSs and 0.3% on two-year Treasuries.

Investors can't get enough of these subprime ABSs, so the market for them has grown.

And grown...

And grown...

From 2011 through today, close to $36 billion worth of these securities have been sold on the market. Just this week, a few Wall Street banks announced a subprime auto loan securities deal worth $1.6 billion.

And on and on it goes until the music stops, just like it did in 2008. Just like the toxic mortgage-backed securities of the last decade, these are spreading all over, and spreading fast.

As with nearly all the I-can't-believe-this-is-legal financial shenanigans, you have the Federal Reserve to thank for it.

Ever since QE Infinity, when the Fed took interest rates to near zero, investors large and small have been clamoring for something - anything ­- with a yield above, well, zero.

Both of those links seem to do nothing more than parrot the Reuters piece. The key to which is this line from the original piece:

"A bust in the subprime auto market wouldn't have consequences nearly as devastating for lenders, investors or the broader economy as the housing bust did."

Ramsay is entertaining, but I wouldn't stake my future in him. The average car loan is not near 84 months. Loans above MSRP are nothing new. High risk high interest financing has existed longer than I have - of course there will be more in it during socio-economic decay that is greater than at any time since I have been around.

In response to both your statements. One, usury laws should be in place. If the person is a poor risk don't loan them money. I am tired of picking up the tab when the banks make bad loans.

Second, the high risk borrowers need to lower their standards on car purchases. This gets back to the usury laws. Buy a $5000 whooper at 12% interest for 3 years and keep your payments under $200 a month. If you cannot afford that at minimum wage better get a bike and a job close to where you live.

"The Volkswagen Group further strengthened its position in the global markets in the first three months of fiscal year 2013, despite the challenging conditions and intense competition. Including China, deliveries increased by 4.8 percent to 2.3 million vehicles worldwide. The Group's share of the global passenger car market rose year-on-year to 12.6 percent (12.2 percent)."

If those risky rates were under 20%, there would likely be less problem, yes. The whole bike/job thing isn't really possible for most, especially in a nation where residential development/public transit practices have been bought off by special interests.

Every state has their own usury law (and don't ask me how the feds get involved - I think they regulate student loan rates though). South Dakota has no maximum interest rate - that was a scheme to attract banks there, since bank usury rates depend on the law of their home office. (usurylaw.com)

The whole bike/job thing isn't really possible for most, especially in a nation where residential development/public transit practices have been bought off by special interests.

My sister has lived gone to college and worked in Seattle since the late 1960s. She has never owned a car. Rides her bike everywhere she goes. I would imagine she takes it on the bus as well.

The student loan issue is big as well. The difference you cannot get rid of a student loan with foreclosure, repossesion or bankruptcy. Dying is the only way to get rid of a student loan provided you are not married and pass it onto a spouse.

As a matter of fact the owner of a snowboard and skateboard factory lives near me. He rides his skate board to the bus then transfers to the trolley and makes it all the way 35 miles to his San Diego Harbor factory every day. Fact is we are spoiled having cars. Last I checked we are still free to live where ever we can afford to live. Get close enough to walk if you don't want a two hour bus ride or a 3000 mile airplane ride that I had every 3 weeks for 25 years. Don't make excuses for people that feel entitled to more than they have.

Sadly, race to the bottom wage pressures and inflated every day living costs kind of limit that freedom. Seems quite a few of those entitled people are in the upper ranks and relied on a lot of luck to get there.

"Volkswagen, by contrast, saw sales fall 10% to 33,644 units. The company reported a 16% decrease in sales of its most popular model, the Jetta, and a 10% decrease in sales of its second-most popular vehicle, the Passat.

&#147;While it was a challenging month, particularly in the compact and midsize sedan segments, we remain solidly focused on our long-term growth strategy,&#148; said Jonathan Browning, CEO of Volkswagen Group of America, in a statement."

Sadly, race to the bottom wage pressures and inflated every day living costs kind of limit that freedom. Seems quite a few of those entitled people are in the upper ranks and relied on a lot of luck to get there.

Reality is what it is. Lamenting will not change it. The folks running the show feel they need to flood our country with more cheap laborers and while regulating the jobs out of the country. The Elephants and jackasses agree that making citizens out of anyone that crosses the border is a win win for both of them. The working man on the bottom of the pile is screwed.

You don't need to lecture me about reality, I live it every day. Either way, having an affordable place to live within a reasonable distance from work simply isn't reality for many people - our infrastructure has failed that too. Hell, I can't afford to buy anything but a dinky condo within a reasonable distance from my workplace, and I make ok money.

I won't disagree about your basic slant regarding those workers. They'll end up taking those high interest high risk loans that keep some GM models moving, and most of them will pay the note, too.

Are you sure? I see more and more people living in tents and their cars. Just announced that we are at the lowest home ownership in 18 years. You can afford a condo. That puts you in a higher bracket than most.

With the banks borrowing from the Fed at near Zero and lending at very high rates, emphazises this Federal Government is not interested in the American people. Consumer interest should be capped at 5% over prime.

I'm sure, reality might not be what some imagine. I have been able to survive (maybe with less sanity) in arguably the most competitive work environment in modern history, and I generally spend less than I make. If only our esteemed leadership could do likewise.

Lower home ownership might not be all bad. The very unstable work climate today demands it - I know quite a few people who have moved many states for jobs. Hard to do with a mortgage looming over you, especially if you aren't old enough to have any real equity. It might make for a more flexible workforce, like can be seen in the competition we are supposed to mimic, right? Also more money for other things if the situation is like it is here, and rents are often far lower than the carrying costs of a mortgage.

I would have been dumb to buy that condo when I moved here, and I still see it as a bad investment.

Maybe interest other than mortgages should be tax deductible, too. No reason realtors and contractors should receive defacto subsidies.

I agree with you. You can rent in CA far cheaper than owning. I am sure Seattle is the same way. Out here in small town midwest you pay $1100 to $1200 rent on an $80k home. Makes buying a much better option.

I would have been dumb to buy that condo when I moved here, and I still see it as a bad investment.

Again I agree with you. I don't think Seattle has felt the pain of CA, AZ, NV or FL homeowners. With our dollars shrinking in value how much longer will the rest of the USA maintain higher prices?

I wandered through the Toyota, Lexus, Chrysler & Jeep showrooms this morning. They were all dead here in So Indiana. I think the only thing keeping US going is the Fed printing more money.

PSall consumer interest was deductible at one time. Not sure who took it away.